As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they’re actually quite different, with varying timelines and financial impact on the homeowner. Here’s a brief overview.

A short sale comes into play when a homeowner needs to sell their home but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.

On the buyer side, short sales typically take three to four months to complete and many of the closing and repair costs are shifted from the seller to the lender.

On the other hand, a foreclosure occurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner.

After foreclosure the bank can sell the home in a foreclosure auction. For buyers, foreclosures can be riskier than short sales, because homes are often bought sight unseen, with no inspection or warranty.

Based on the 2017 Housing Fact Book by HousingWorksRI, we have seen a statewide 32 percent increase in foreclosures from 2015 to 2016. Within the 1,561 foreclosure deeds issued, 311 were for multifamily homes; this represented a loss of approximately 750-900 homes. Rhode Island’s rate for seriously delinquent loans is ninth highest in the United States.